PayPal freezes $45,000 of Mailpile’s crowdfunded dollars (Updated)

Demands "itemized budget" from Iceland-based team before releasing funds

Update: PayPal has contacted Ars Technica and informed us that it has released Mailpile's funding. PayPal's statement is below.

Mailpile is a crowdfunded e-mail client written by a small group of folks in Reykjavik, Iceland. The product aims to let users keep their mail local and under their own control rather than relying on Google, Microsoft, or another cloud e-mail provider, and it has an active Indiegogo campaign with six days left on the clock (disclosure: I'm a backer).

PayPal has a long and storied history of freezing money belonging to customers that it suspects of fraud (like Minecraft designer Markus "Notch" Persson) or that it nebulously accuses of failing to adhere to its terms of service (like WikiLeaks and Courage to Resist, an organization that supports convicted WikiLeaks leaker Chelsea Manning [formerly known as Bradley Manning]).

Novak contacted PayPal in an attempt to access the nearly $45,000 of contributions the payments giant had locked Mailpile out of, but was flatly told that PayPal would be keeping the funds frozen for a full year or until they have a verifiable 1.0 release of their product. Alternately, PayPal said, Mailpile could provide PayPal with "an itemized budget and your development goal dates" for the project.

It's unclear what options Mailpile has. In the US, PayPal is not considered a bank and operates under none of the legal constraints that apply to financial institutions. There is also the question of jurisdiction; Novak summarizes the issue thusly on Mailpile's blog:

This puts us in an incredibly uncomfortable position as we do not feel that it's remotely in their jurisdiction to ask for a detailed budget of our business, any more than it is within our right to ask for theirs.

Communications with PayPal have implied that they would use any excuse available to them to delay delivering as much of our cash as possible for as long as possible. Asking us to give them justification for such behavior is obviously not in our best interests. PayPal's position [is] particularly ridiculous when contrasted with IndieGoGo's policy of transferring all funds to successful campaigns within 15 days of their conclusion. If IndieGoGo can do it, so can PayPal.

Unfortunately, Mailpile likely has a hard road ahead fighting through PayPal's notoriously obtuse and unresponsive "fraud" process—a process so broken that PayPal itself has acknowledged it's in need of "aggressive changes." If past freezes are any indication, the best way forward is almost certainly to abandon attempts at redress through customer service and simply make as much noise as possible in the press to get PayPal's upper management to take notice.

Ars contacted Mailpile to ask if PayPal has made any further offers of assistance, but according to Novak, it has not:

No, PayPal has been quite difficult and is asking for unreasonable private details about our business—it's all very strange. However, we have faith that we are in the right and will thus prevail. Afterwards I will be deleting my PayPal account and never looking back.

Update: PayPal has notified Ars Technica via phone and e-mail that it has released Mailpile's crowdsourced funding, and it is working on modifying its oversight procedures to better cope with crowdfunding. Here is the company's full statement:

We have reached out to MailPile and the limitation has been lifted. Supporting crowd funding campaigns is an exciting new part of our business.We are working closely with industry-leaders like IndieGoGo and adapting our processes and policies to better serve the innovative companies that are relying on PayPal and crowd funding campaigns to grow their businesses. We never want to get in the way of innovation, but as a global payments company we must ensure the payments flowing through our system around the world are in compliance with laws and regulations. We understand that the way in which we are complying to these rules can be frustrating in some cases and we've made significant changes in North America to adapt to the unique needs of crowd funding campaigns. We are currently working to roll these improvements out around the world.

Ars will be meeting with a PayPal spokesperson later today to discuss the matter further.

Paypal needs to stop playing moral police and deciding who I can and can't give my money to.

That's not going to happen, the past few years have seen them increasing their morality policing behavior. Just in July they blocked iPredator's VPN service and froze their account. They've cut off file locker sites in the past (back to 2012) as well, including well known ones like MediaFire (so not just the ones that are more iffy in their behavior),

And he can't legally or medically become "Chelsea" until he finishes his prison sentence, so I don't see why you are playing that part of it up.

She certainly can, getting surgery and hormonal treatment while in prison is certainly legal, as is filing to change her name legally.

In civilian prison, certainly, but he's going to a military prison, which means he still falls under military rules and as such cannot do that.

Citation needed. The only question is whether or not the government will have to pay for it, I think they should as it's a medical treatment recommended by her doctor, but she has said she will pay for it herself. It is not illegal to get medical treatment while in military prison.

And he can't legally or medically become "Chelsea" until he finishes his prison sentence, so I don't see why you are playing that part of it up.

She certainly can, getting surgery and hormonal treatment while in prison is certainly legal, as is filing to change her name legally.

In civilian prison, certainly, but he's going to a military prison, which means he still falls under military rules and as such cannot do that.

Citation needed. The only question is whether or not the government will have to pay for it, I think they should as it's a medical treatment recommended by her doctor, but she has said she will pay for it herself. It is not illegal to get medical treatment while in military prison.

It is not a medical treatment the military system provides, period. There are very few elective surgeries you can get in the military, and those are generally beneficial to the service, such as vision correctiive surgery. Gender reassignment is a long process requiring special handling in a prison, which the command there will be unwilling to perform special exceptions for.

At some point, people are going to have to realize that using Paypal is just not a good idea. How many times has this happened and yet nobody seems to be learning to stay away from them?

Until there is a widespread and well-known alternative people will continue to use it. Right now no such alternative exists, so the options are paypal or nothing.

Amazon Payments. Anyone that has an Amazon account (which is a very large group of people) can use it.

I know it exists. I know how to use it.The problem is it isn't well-known and widespread enough to be a replacement. Try explaining to an ebay buyer or seller about sending money through amazon payments.

What alternatives are there to PayPal for a entity such as Mailpile and what are their track records like?

The freezing of the money until the work is done sounds crazy, since the money was there in order to do the work. PayPal has its reasons, but the way it seems to be going about them and the lack of potential for dialogue are absurd. I assume the moral of the story is don't deal with companies you can't communicate with?

As to keeping the money, that does sound like grand theft or anti-trust. If the receiving entity fails to claim, then surely that money should be reverted to the people who contributed the money otherwise why bother playing moral police - the people who contributed are losing either way.

So does paypal return the money that they freeze eventually or do they just keep it? Bank or not, I would assume stealing 45k would amount to grand theft somewhere.

In previous cases they've just kept the money. They claim that it's okay because they say so.

They don't keep the money as in put it into a general coffer, it goes into holding, permanently. They then follow the rules of whatever jurisdiction they decide the money must belong to. Finance laws are all pretty well laid out.

The article states they have no options, yet it also details two options they have: show a verifiable 1.0 release or an itemized budget.

They might not be options that Mailpile likes, but they are options.

Not saying I agree with PayPal in any way, just stating facts.

But why does PayPal get to decide that the people who gave them money clearly are wrong and it's their responsibility to steal the money they need to create their product until such time as they create the product. They didn't ask PayPal for a loan, they have nothing to do with the business except as a payment processor

At some point, people are going to have to realize that using Paypal is just not a good idea. How many times has this happened and yet nobody seems to be learning to stay away from them?

Until there is a widespread and well-known alternative people will continue to use it. Right now no such alternative exists, so the options are paypal or nothing.

Amazon Payments. Anyone that has an Amazon account (which is a very large group of people) can use it.

I know it exists. I know how to use it.The problem is it isn't well-known and widespread enough to be a replacement. Try explaining to an ebay buyer or seller about sending money through amazon payments.

Kind-of a Catch-22, though. Until people start using it and telling others about it, people won't use it. It does have the built-in advantage that it has a huge installed-base already.

...Paypal would be keeping the funds frozen for a full year or until they have a verifiable 1.0 release of their product.

That seems quite circular:Customer: "But, we need to these funds to complete product development!"PayPal: "Nope. No money until we see released product."

Has PayPal ever been sued in a U.S. court for such action? I can't believe that PayPal's legal department would approve such action based merely on "suspicion of fraudulent activity."

With that said, Mailpile really should have at least scope-of-work estimates. Otherwise, how did they even establish a fundraising goal? But demanding a detailed, itemized budget at this point in their process seems unreasonable.

One might easily form the notion that PayPal simply does not want this product to be developed.

And he can't legally or medically become "Chelsea" until he finishes his prison sentence, so I don't see why you are playing that part of it up.

She certainly can, getting surgery and hormonal treatment while in prison is certainly legal, as is filing to change her name legally.

True and not true.

As a prisoner that is still in the military (yes he is) Manning can get surgery and hormonal treatment while in prison at his own expense for the surgery and initial course of hormonal treatment (if the Army gives its permission for him to do that), after that any continuing care cost would be provided by the government.

As a prisoner that is still in the military Manning can apply for a name change, but can't legally change his name while serving the sentence as a military prisoner unless the Army allows it to be done.

Manning is still in the Army, the official policy of the U.S. Army is “The Army does not provide hormone therapy or sex-reassignment surgery for gender identity disorder”

If Manning wants it he is going to either pay for it himself, or take the government to court to force the government (and thus the tax payers) to pay for it.

His legal gender is still male and his legal name is still Bradley Manning no matter how much he wants, or others recognize, it to be Chelsea Manning or be female at this time.

I know this will not be a popular post probably, so down vote away. Not trying to be insensitive, just recognizing the realities that Manning is a little different case as he is in the Army (his discharge from the trial does not actually take effect until the time is actually served, its how the military maintains jurisdiction, upon the time being served his discharge takes effect immediately) and not like a regular prisoner in the regular federal system, so a broad and unqualified it being legal needs to be looked at in context with the specific case. So the only 'formally known as' thing about Manning in regards to gender and name is that Manning wishes to be called Chelsea and wants to live as a woman, but legally right now he isn't 'formally known as' any other person or gender other than Bradley and male.

The article states they have no options, yet it also details two options they have: show a verifiable 1.0 release or an itemized budget.

They might not be options that Mailpile likes, but they are options.

Not saying I agree with PayPal in any way, just stating facts.

So all they have to do is get to a 1.0 release without the money they raised to pay for doing exactly that? That's not an option, that's a catch-22.

Not really. 1.0 release just means labeling a release as 1.0. It doesn't mean the release is bug free, or you are done working on it. It just means you've labeled the release as 1.0. It's magical number theory in reality.

If I was them, I'd feature freeze. Do an assessment of all features based on bugginess and whether it's required. Then possibly cut a few features from 1.0. Do a hard push to do the minimum necessary fixes for the features kept. Label it as 1.0 and release it. While at same time releasing a realistic list of features to be aimed for in 2.0.

Then say look, we've released a 1.0 to our supporters, release the money. And if they ever get the money from paypal, yank it out of paypal and put it in some other bank.

Lee Hutchinson / Lee is the Senior Reviews Editor at Ars and is responsible for the product news and reviews section. He also knows stuff about enterprise storage, security, and manned space flight. Lee is based in Houston, TX.